1 IFRS 15 revenue from Contracts with Customers Applying IFRS. A closer look at the new revenue recognition standard Updated October 2015. Contents Overview .. 4. 1. Effective date and 7. Effective date .. 7. Transition approaches .. 8. Application considerations .. 15. 2. Scope .. 18. Definition of a customer .. 18. Collaborative arrangements .. 19. Interaction with other standards .. 20. 3. Identify the contract with the customer .. 24. Attributes of a contract .. 25. Combining contracts .. 32. contract 33. Arrangements that do not meet the definition of a contract under the standard .. 40. 4. Identify the performance obligations in the contract .. 43. Identifying the promised goods and services in the contract .. 43. Separate performance obligations.
2 49. Goods and services that are not distinct .. 57. Principal versus agent considerations .. 58. Consignment arrangements .. 65. customer options for additional goods or 66. Sale of products with a right of return .. 69. 5 Determine the transaction price .. 71. Variable consideration .. 72. Accounting for specific types of variable consideration .. 84. Significant financing component .. 87. Non-cash 95. Consideration paid or payable to a 97. Non-refundable upfront fees .. 102. 6 Allocate the transaction price to the performance 104. Estimating stand-alone selling prices .. 104. Applying the relative stand-alone selling price method .. 113. Allocating variable consideration .. 114. Allocating a discount .. 117. Changes in transaction price after contract inception.
3 121. Allocation of transaction price to components outside the scope of IFRS 15 .. 122. 1 October 2015 A closer look at the new revenue recognition standard 7 Satisfaction of performance obligations .. 123. Performance obligations satisfied over time .. 123. Control transferred at a point in time .. 140. Repurchase agreements .. 143. Bill-and-hold arrangements .. 148. customer acceptance .. 150. Licensing and rights to use .. 151. Recognising revenue when a right of return 152. Breakage and prepayments for future goods or services .. 152. Onerous contracts .. 154. 8 Other measurement and recognition topics .. 155. Warranties .. 155. Onerous contracts .. 159. contract costs .. 160. Licences of intellectual property .. 166. 9 Presentation and disclosure.
4 179. Presentation of contract assets, contract liabilities and revenue .. 179. Disclosure objective and general requirements .. 181. Specific disclosure requirements .. 182. Appendix A: Extract from EY's IFRS Disclosure Checklist .. 192. Appendix B: Illustrative examples included in the standard .. 197. October 2015 A closer look at the new revenue recognition standard 2. What you need to know IFRS 15 creates a single source of revenue requirements for all entities in all industries. The new revenue standard is a significant change from current IFRS. The new standard applies to revenue from contracts with customers and replaces all of the revenue standards and interpretations in IFRS, including IAS 11 Construction Contracts, IAS 18 revenue , IFRIC 13 customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 revenue Barter Transaction involving Advertising Services.
5 IFRS 15 is principles-based, consistent with current revenue requirements, but provides more application guidance. The lack of bright lines will result in the need for increased judgement. The new standard will have little effect on some entities, but will require significant changes for others, especially those entities for which current IFRS provides little application guidance. IFRS 15 also specifies the accounting treatment for certain items not typically thought of as revenue , such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets. 3 October 2015 A closer look at the new revenue recognition standard Overview In May 2014, the International Accounting Standards Board (IASB) and the US.
6 Financial Accounting Standards Board (FASB) (collectively, the Boards). respectively issued converged new revenue standards: IFRS 15 revenue from Contracts with Customers and Accounting Standards Update (ASU) 2014-09, revenue from Contracts with Customers (largely codified in Accounting Standards Codification (ASC) 606) ( together with IFRS 15, the new revenue standards). These new revenue standards will supersede virtually all revenue recognition requirements in IFRS and US GAAP, respectively. Noting several concerns with existing requirements for revenue recognition under both US GAAP and IFRS, the Boards decided to jointly develop new revenue standards that would: Remove inconsistencies and weaknesses in the current revenue recognition literature Provide a more robust framework for addressing revenue recognition issues Improve comparability of revenue recognition practices across industries, entities within those industries, jurisdictions and capital markets Reduce the complexity of applying revenue recognition requirements by reducing the volume of the relevant standards and interpretations Provide more useful information to users through expanded disclosure requirements1.
7 IFRS 15 specifies the accounting treatment for all revenue arising from contracts with customers. It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRSs, such as IAS 17 Leases. The standard also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property, plant or equipment. As a result, IFRS 15 will likely affect an entity's financial statements, business processes and internal controls over financial reporting. While some entities will be able to implement the standard with limited effort, others may find implementation a significant undertaking. Successful implementation will require an assessment ofand a plan for managing the change.
8 The standards under IFRS and US GAAP were identical when issued except for the following: The Boards use the term probable' to describe the level of confidence needed when assessing collectability to identify contracts with customers, which has a lower threshold under IFRS than US GAAP (as discussed in Section ). The FASB requires more disclosures in interim financial statements than the IASB. The IASB allows early adoption The IASB permits reversals of impairment losses and the FASB does not The FASB provides relief for non-public entities ( , an entity that does not meet the definition of a public entity in the US GAAP version of the standard) relating to specific disclosure requirements, the effective date and transition 1. IFRS October 2015 A closer look at the new revenue recognition standard 4.
9 The standard outlines the principles an entity must apply to measure and recognise revenue and the related cash flows. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer . The principles in IFRS 15 will be applied using the following five steps: 1. Identify the contract (s) with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognise revenue when (or as) the entity satisfies a performance obligation An entity will need to exercise judgement when considering the terms of the contract (s) and all of the facts and circumstances, including implied contract terms.
10 An entity will also have to apply the requirements of the standard consistently to contracts with similar characteristics and in similar circumstances. To assist entities, IFRS 15 includes detailed application guidance and illustrative examples. We include a list of these examples in Appendix B to this publication. IFRS 15 must be adopted using either a fully retrospective approach for all periods presented in the period of adoption ( with some limited relief provided). or a modified retrospective approach. When it was issued, the standard was mandatorily effective for annual periods beginning on or after 1 January 2017. for IFRS preparers. US GAAP public entity preparers were required to adopt the standard for annual periods beginning after 15 December 2016.